An Introductory Investment Thesis For Gold And Silver - Part II

Summary

• Market structure and behaviors paint additional pictures of the potential rush to gold as a safe haven asset.
• Interest rates and currency manipulation on account of the Coronavirus crisis has led to a global trend of debasement.
• Technical trends in prices and ratios suggest gold, and hence silver has significant upside.

While the pandemic has thrown the financial markets into disarray, governments of the United States and other developed economies fight tooth-and-nail to stem the fallout that the lockdowns they have imposed have caused. Central Banks have literally thrown the kitchen sink trying to contain this fallout by directly involving themselves in market operations indirectly sabotaging the recovery of the organic economy through their Special Purpose Vehicles (SPVs). It is noted that as stocks have rallied immensely since their March lows with the Nasdaq surpassing all-time highs (ATHs) set in February 2020, unemployment rates and claims continue to accumulate on a large scale. In addition, the performance of stocks has been seen to directly correlate with the size of the Federal Reserve’s Balance Sheet (BS) most recently since the September 2019 repo market crisis and since the bottom achieved for the year in March 2020. Going further into the past, we can see various fundamentals in conjunction with the BS expansion have facilitated the rise in the major stock market benchmark indexes since the Great Financial Crisis (GFC), but they have significantly underperformed with respect to gold. As explained in the first Introductory Investment Thesis for Gold and Silver (IIT I), the coming bull market in gold and silver is primarily concerned with the money supply and behavior. As we will see, the rise in gold and silver prices does not account for other social and political factors that have caused widespread instability and chaos throughout the United States. While two particular monetary characteristics – TIPS interest rates and M2 money supply in the United States – are seen to be the primary drivers of the US Dollar price of gold in consecutive importance, international currency market behavior and the structure of the global financial system paint additional pictures of the potential rush to gold as a safe haven asset. This analysis will focus more on the behavior of gold and currency since silver follows gold in performance

Analyst’s Disclosure: I am/we are long XAUUSD:CUR, XAGUSD:CUR, GLD, SLV. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

We are long gold and silver for the reasons listed in the article and for many other socio-economic reasons unlisted here, such as the growing wealth divide and current political unrest occurring within the United States and across the world. The data presented in this analysis is as of the week of December 13, 2020.